Avalara (NYSE:AVLR) Posts Better-Than-Expected Sales In Q4 But Growth To Slow Down Next Year

Kayode Omotosho /
2022/02/10 4:38 pm EST

Tax compliance software maker Avalara (NYSE:AVLR) beat analyst expectations in Q4 FY2021 quarter, with revenue up 34.8% year on year to $195.1 million. Guidance for next quarter's revenue was $198 million at the midpoint, 2.74% above the average of analyst estimates. Avalara made a GAAP loss of $35 million, down on its loss of $11 million, in the same quarter last year.

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Avalara (AVLR) Q4 FY2021 Highlights:

  • Revenue: $195.1 million vs analyst estimates of $184.3 million (5.84% beat)
  • EPS (non-GAAP): -$0.06 vs analyst estimates of -$0.07
  • Revenue guidance for Q1 2022 is $198 million at the midpoint, above analyst estimates of $192.7 million
  • Management's revenue guidance for upcoming financial year 2022 is $856.5 million at the midpoint, beating analyst estimates by 2.4% and predicting 22.5% growth (vs 35.3% in FY2021)
  • Free cash flow of $18 million, up 183% from previous quarter
  • Net Revenue Retention Rate: 116%, in line with previous quarter
  • Customers: 18,270, up from 17,400 in previous quarter
  • Gross Margin (GAAP): 70%, down from 71.9% same quarter last year

“For the full year we accelerated our topline, achieving revenue growth of 40% year-over-year, and we delivered our third consecutive year of positive operating and free cash flow,” said Scott McFarlane, Avalara co-founder and chief executive officer.

Founded by Scott McFarlane in 2004, Avalara (NYSE:AVLR) offers software as a service that provides companies with real-time information on how much tax to charge and automates tax compliance.

The demand for easy to use, integrated cloud based finance software that integrates tax and accounting operations continues to rise in tandem with the difficulty workers find trying to use existing accounting tools like spreadsheets given the growing volume of finance data littered across a multitude of enterprise applications. A related demand driver is the secular increase of e-commerce and rising adoption of modern point of sales and payments platforms which easily integrate with backend financial software.

Sales Growth

As you can see below, Avalara's revenue growth has been very strong over the last year, growing from quarterly revenue of $144.7 million, to $195.1 million.

Avalara Total Revenue

And unsurprisingly, this was another great quarter for Avalara with revenue up 34.8% year on year. On top of that, revenue increased $13.9 million quarter on quarter, a solid improvement on the $12.1 million increase in Q3 2021, and even a sign of slight acceleration of growth.

Guidance for the next quarter indicates Avalara is expecting revenue to grow 28.9% year on year to $198 million, slowing down from the 37.8% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $856.5 million at the midpoint, growing 22.5% compared to 35.3% increase in FY2021.

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Customer Growth

You can see below that Avalara reported 18,270 customers at the end of the quarter, an increase of 870 on last quarter. That's in line with the customer growth we have seen over the last couple of quarters, suggesting that the company can maintain its current sales momentum.

Avalara Customers

Key Takeaways from Avalara's Q4 Results

With a market capitalization of $9.74 billion Avalara is among smaller companies, but its more than $1.51 billion in cash and positive free cash flow over the last twelve months give us confidence that Avalara has the resources it needs to pursue a high growth business strategy.

We liked to see that Avalara beat analysts’ revenue expectations pretty strongly this quarter. And we were also excited to see the really strong revenue growth. On the other hand, the revenue guidance for next year indicates a significant slowdown. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 2.2% on the results and currently trades at $115 per share.

Should you invest in Avalara right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.